Everyone knows the stock market is the best place for your money, right? Everybody's heard about how stocks return 10% on average over the long term. And everyone now invests his savings in stocks, with the aim of enjoying years of profits from dividends and capital gains.
Well, apparently not everyone. In fact, I recently came across a survey showing that even today, only about half of American households own stocks or mutual funds.
So where do these people keep their savings? In bonds and CDs, in passbook savings accounts, and checking accounts. And what are they earning? Depending on the maturity, your average bond or CD is paying around about 4% in interest these days. And savings and checking accounts are even worse, with many still paying less than 1%.
How to lose money every day
That's a one-way ticket to Poorville, people. Because unless you're talking tax-free municipal bonds, most of these non-stock investments are taxed by your friendly neighborhood IRS office as ordinary income. Broadly speaking, on a 4% bond, you're losing 1% to the taxman right off the bat.
And as for the remaining 3% -- well, that just about equals the historical average inflation rate in the U.S. Long story short, buying bonds is an excellent way to preserve your wealth, so long as inflation remains low. But ain't nobody getting rich off it.
If that were not bad enough, consider the situation facing diligent savers, who every two weeks tuck away their extra income in a checking account. Those unfortunate souls may not pay as much in taxes, but even the high-yield Internet savings account offered by ING Group
First American Bank of Wall Street
Which brings us to today's topic: how to make Wall Street your bank. You see, ordinarily, when people consider buying a stock, their primary concern is "How much will it go up?" But not us. At Motley Fool Income Investor, we think differently.
Or rather, we think originally, in the sense of "the original purpose of buying common stocks was to earn dividend income on those stocks." That's a truism that somehow got lost in the dot-com heyday of the late '90s, when Wall Street was all aflutter for dividend-less techs such as Lucent
We're convinced that you don't have to sacrifice the safety offered by a savings account in order to achieve the stellar returns available in the stock market. We're also convinced that you can invest in stocks without taking on significantly more risk than that borne by a passbook holder. (And since we've already shown that a passbook holder is guaranteed to lose money over time, we think that's a pretty safe assumption.)
Simply put, we advocate depositing your savings in the First American Bank of Wall Street (which we, its customers, affectionately refer to as the "Fab Bank.") The Fab Bank isn't really a bank, of course. Rather, it's a collection of some of the finest -- and most rewarding, most undervalued -- companies currently traded on the public markets. Think of each of these companies as a separate Fab Bank branch, not branches located across town or across the state line but right next door -- right at your fingertips, actually -- available to serve your banking needs 24/7, only a keyboard away.
Supersize your returns
In lieu of interest, each Fab Bank company pays an above-average dividend. And a dividend that we expect it to keep on paying. We don't think investors have to take on above-average risk to get the kind of huge dividend payouts offered by troubled companies such as GM
What we're talking about here is a stable of companies such as Dow Chemical
And those are just the stingiest of the companies. On average, the businesses that make up the Fab Bank pay their investors a dividend yield of 4.4%. By investing in them, our Income Investor members have over the past two years:
- beat the average savings account's payout by a margin of better than 4-to-1
- beat the average S&P company's dividend by a margin of nearly 3-to-1
- and even beat the payments on that gold standard for safety -- the U.S. Treasury bond.
All while providing portfolio stability, dependable payouts, and the chance for additional profit through capital appreciation.
Get a piece of the rock
Because here's the best part: Whenever you make a deposit at the Fab Bank, you don't just collect its dividend -- you actually own a piece of the company. A share in the business that can grow in value along with the business over the years. And grow it will. Because we've subjected each of these branches to the kind of in-depth security analysis made famous by value-investing master Benjamin Graham. And we don't add any company to our stable of Fab Bank recommendations unless we're pretty darn certain that it's selling at a sizable discount to its intrinsic value.
Combined with the dividends, Income Investor's recommendations have netted our subscribers a total return of 14% since the service's inception. That's twice the return offered by the S&P index and miles ahead of any returns available from bonds or bank accounts over that time period. And with less volatility to boot, since much of our companies' return came in the form of regular, dependable -- and generous -- dividend payouts.
Which incidentally, are taxed at just 15%, meaning that an Income Investor gets to keep more of each dollar of profit he collects than does your average Wall Streeter, who pooh-poohs boring old dividends in his mad rush for high-taxed capital gains.
Open an account, get a free toaster
OK, we're not actually in the business of dispensing toasters. On the other hand, we've got an offer that we think is worth even more to you. Sign up today, and you can receive one free month of Income Investor -- plus access to all 40 of our past recommendations.
So take your time. Join now, and peruse our past issues at your leisure. Check out our previous recommendations and see how well they've done. We think our returns speak for themselves and that you'll decide to stay longer. But, hey, if after a month you're still not convinced, you can cancel with no obligation whatsoever, no strings attached. You have our word on it.